Carol Stone, CBE

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<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921d.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921e.jpg">
Retail trade in Canada fell 0.8% in July following on a 1.1% drop in June. May had been stronger, with a 2.8% increase. The July result year-on-year was up 3.8%. This was the weakest y/y increase since October 2005, although the monthly swings in these growth rates make it a bit misleading to characterize the one month; the y/y change in a 3-month moving average, by contrast, was 6.6%, roughly in line with recent experience.
Several store groups shared the pattern of a strong May followed by decreases in June and July. The automotive sector, which accounts for about 34% of retail sales in Canada, gained 4.3% in May, but then fell 2.9% in June and 1.3% in July. But others duplicated this: home centers and hardware stores, clothing, and general merchandise, as examples.
The strength in May&#39;s sales was believed by Statistics Canada and private analysts to be largely attributable to a government-worker pay settlement received by women in Quebec, one of a series of &quot;pay equity&quot; settlements achieved by unions and/or reflecting national legislation concerning salaries of women and men. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921f.jpg" width="353">Sales in Quebec then were up 5.0% in May and they fell 4.1% in June and 0.7% in July. Sales among all the other Provinces, though, still rose 2.2% in May, so not all of the push was due to the payout to Quebec&#39;s workers.
Among other of the big Provinces, Ontario saw 2.1% growth in May and then declines of 0.5% in June and 1.9% in July. Alberta sales rose 2.9% in May and 0.6% in June; they edged down 0.2% in July. 
On a volume basis, sales showed the same monthly pattern. In chained 2000 C$, they rose 2.5% in May and fell back 0.7% in June and 0.8% in July. Prices were thus not the major reason for the swing in nominal sales. In May, the retail trade price index rose just 0.3%; it declined 0.4% in June and was flat in July.
As we noted at the outset, while these sales look to be slowing if July alone is compared to year-ago figures, it really does seem too early to conclude that the trend is shifting. However, the trend in the Canadian economy looks to be quite sensitive to the path of this key measure of consumer demand over the next month or two.
The national data for Canada are contained in Haver&#39;s CANSIM database, with that for the Provinces in CANSIMR.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">CANADA (% Chg)</th>
<th scope="col">Jul 2007*</th>
<th scope="col">Jun 2007*</th>
<th scope="col">May 2007*</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Trade: All Groups</td>
<td>-0.8</td>
<td>-1.1</td>
<td>2.8</td>
<td>3.8</td>
<td>6.4</td>
<td>5.6</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">All Motor Vehicles &amp; Parts Dealers</td>
<td>-2.3</td>
<td>-3.6</td>
<td>5.0</td>
<td>3.7</td>
<td>6.0</td>
<td>5.0</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less MV &amp; P</td>
<td>0.3</td>
<td>1.9</td>
<td>0.1</td>
<td>4.7</td>
<td>6.4</td>
<td>6.5</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Gasoline Stations</td>
<td>-3.5</td>
<td>4.7</td>
<td>5.3</td>
<td>0.2</td>
<td>9.1</td>
<td>15.4</td>
<td>11.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less MV &amp; P and Gasoline</td>
<td>0.9</td>
<td>1.5</td>
<td>-0.6</td>
<td>5.4</td>
<td>5.9</td>
<td>5.2</td>
<td>5.5</td>
</tr>
</tbody>
</table>
</body>
</html>

Retail trade in Canada fell 0.8% in July following on a 1.1% drop in June. May had been stronger, with a 2.8% increase. The July result year-on-year was up 3.8%. This was the weakest y/y increase since October 2005, although the [...]

Canada's Retail Trade Falls 0.8% in July, But Could Be Simple Offset to Earlier Strength

Robert Brusca

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<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921g.jpg" width="353">
Construction sector is on its LIFETIME LOW &#150; since 1993. 
The chart on the left shows the 12-month momentum in Japan&#146;s various key sectors. Among them, only construction is contracting and it has been doing that since mid -2006. Construction is at the its lifetime low point. Other sectors are relatively high in their respective ranges &#150; in their 90th percentiles. But momentum is fading across these sectors. MFG is only gradually losing momentum while the tertiary sector (services) has less momentum to start and is also losing it faster. The all industry measure tracks the tertiary sector closely. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan="10" scope="col">Japan Main Industry Surveys</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes: Range</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Jul 2007</td>
<td>Jun 2007</td>
<td>May 2007</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">All Industry</td>
<td>107.1</td>
<td>107.5</td>
<td>107.3</td>
<td>107.3</td>
<td>107.2</td>
<td>106.9</td>
<td>107.6</td>
<td>93.1</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>78.7</td>
<td>80</td>
<td>81.6</td>
<td>80.1</td>
<td>80.3</td>
<td>80.4</td>
<td>124.6</td>
<td>78.7</td>
<td>0</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>108.1</td>
<td>108.5</td>
<td>107.1</td>
<td>107.9</td>
<td>107.8</td>
<td>107.9</td>
<td>109.6</td>
<td>87.7</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary</td>
<td>109.7</td>
<td>110.3</td>
<td>110.2</td>
<td>110.1</td>
<td>110.0</td>
<td>109.5</td>
<td>110.7</td>
<td>91</td>
<td>0.9</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
</body>
</html>

Construction sector is on its LIFETIME LOW  since 1993. The chart on the left shows the 12-month momentum in Japans various key sectors. Among them, only construction is contracting and it has been doing that since mid -2006. [...]

Japan is Losing Momentum Across Sectors

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921c.jpg" width="353">
Slip-slidin&#146; away&#133;
The chart on the left tells the story. The table below gives the perspective on the trend with more precision. Anyway you slice it, the release of the Reuters NTC PMI FLASH! readings for the Euro area tell a grim story&#133;the weakest readings in 21 months. That is since its inception for the services measure taking the MFG PMI back to January 2000, so as to include a recession, raises the range ranking of the MFG PMI to the 70th percentile or the top 30%. That is better but it falls short of being called &#145;strong&#146; or robust. If we were grading papers a 70 would be a C-minus.
And this is a September reading that predates the recent push up in the Euro. We have heard Germany&#146;s wise man Bofinger talk of the potential for FX intervention. Intervention was a topic of the speech to today by the ECBs Bini Smaghi. Airbus has warned of adverse strong-euro effects. The currency game is in full swing.
Who&#146;s at risk: Who Da man?While everyone gnashes their teeth for the poor, poor dollar let&#146;s remember that it&#146;s the strong currency country that really get hurt.
Look at Japan&#146;s decade-long torpor after the too-strong yen. Maybe Europe should spend more time worrying about its own polices instead of the US. Since the US has been denied any control of some its most important FX rates as Japan has wallowed in weak growth and borrowing that cheapie has mushroomed into a cottage industry of massive proportions and since China has asserted its right to commandeer its bilateral peg with the dollar, stress has been left fall elsewhere. Euro anyone?
From jubilation to frustration. We have watched with interest as Europe has chortled over the rise of the euro and as that has segued into a view of the literal invincibility of its growth even as the termites have set about their work on those wooden arguments.
Some have talked of switching reserves into euro. Well be careful what you wish for. Now Europe looks in horror at what is happening. This is a continent based on exporting. Exports are typically high; 40% of GDP in Germany and higher in other countries there. A too-high exchange rate is not the sort of collateral problem for Europe that it has been in the US with export more like 10% to 15% of GDP. And, as we have written before, the trouble with being a reserve center currency is that you need a lot of flexibility in your economy to deal with the swing in capital flows that might arise. So despite the fact that those who have shifted into euro may now be happy the real question is this: for how long?
A one-two punch? For Europe the FX rise is taking its toll in concert with the impact from the financial situation everyone said would not spread. The Bank of England was for a while stubborn about its own building crisis (a gathering storm?). But it has had to cave and offer so much assistance that Mr. King is now being crowned (in the pejorative sense) by the Select Committee looking into those matters.
One in repair, one in despair. The ECB is now taking blasts from its favorite critic, Mr Sarcastic, err Sarkozy. While the dollar is floundering, it is in shallow water. As I remind people of this key question: from here how far can the dollar fall and against what? Meanwhile, back at the Euro-ranch, real trouble is brewing and it does not have a good solution. Talk of FX intervention is a pea shooter against a charging elephant. No trained Mahoot would stand in the way of that charging beast, let alone with a pea shooter for a weapon. It is fair to say that the US is in state of repair and Europe is in a state of despair. So much for the fate of the poor dollar&#133; Dollar rules! Euro drools! Why? Because the dollar and US economy can survive this sort of things since IT IS A REAL RESERVE UNIT with all the trappings. The euro, sadly, is not.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th colspan=3 scope="col">FLASH Readings</th>
</tr>
<tr>
<th colspan="3" scope="col">NTC PMIs for the Euro area 13</th>
</tr>
</thead>
<tbody>

<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>MFG</td>
<td>Services</td>
</tr>
<tr>
<td class="firstcol">Sep-07</td>
<td>53.23</td>
<td>54.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Aug-07</td>
<td>54.16</td>
<td>57.91</td>
</tr>
<tr class="grey2">
<td colspan="3" class="firstcol">Averages</td>
</tr>
<tr>
<td class="firstcol">3-Mo</td>
<td>54.08</td>
<td>56.68</td>
</tr>
<tr class="odd">
<td class="firstcol">6-Mo</td>
<td>54.67</td>
<td>57.01</td>
</tr>
<tr>
<td class="firstcol">12-Mo</td>
<td>55.41</td>
<td>57.14</td>
</tr>
<tr class="grey2">
<td colspan="3" class="firstcol">21-Mo Range</td>
</tr>
<tr>
<td class="firstcol">High</td>
<td>57.61</td>
<td>61.21</td>
</tr>
<tr class="odd">
<td class="firstcol">Low</td>
<td>53.23</td>
<td>54.04</td>
</tr>
<tr>
<td class="firstcol">% Range</td>
<td>0</td>
<td>0</td>
</tr>
</tbody>
</table>
</body>
</html>

Slip-slidin away The chart on the left tells the story. The table below gives the perspective on the trend with more precision. Anyway you slice it, the release of the Reuters NTC PMI FLASH! readings for the Euro area tell a grim [...]

NTC Measures Plunge in September-Back to Central Banking School?

Tom Moeller

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921a.jpg" width="353">
The Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector improved sharply this month. The rise to 10.9 more than reversed the deterioration down to 0.0 during August.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three-month growth in factory sector industrial production. There has been a 43% correlation with q/q growth in real GDP.
The sub indexes for new orders and inventories accounted for most of the rise in the overall index. Shipments improved only marginally while the indexes for unfilled orders and employment both fell. During the last ten years there has been a 75% correlation between the employment index and the three-month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921b.jpg" width="353">
The prices paid index reversed some of its deterioration in August but remained near its low since February. During the last ten years there has been a 76% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell slightly but remained near its best level since late in 2004. Expectations for new orders were quite firm and though expectations for the number of employees fell from its recent high, it remained firm.
Subprime Side Effects in the Federal Funds Market from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20071001/cover.pdf"> here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">September</th>
<th scope="col">August &nbsp;</th>
<th scope="col">Sept. &#145;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>10.9&nbsp;</td>
<td>0.0</td>
<td>2.3&nbsp;</td>
<td>8.1</td>
<td>11.5</td>
<td>28.1</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>23.1&nbsp;</td>
<td>15.4&nbsp;</td>
<td>46.6&nbsp;</td>
<td>36.6</td>
<td>40.1</td>
<td>51.2</td>
</tr>
</tbody>
</table>
</body>
</html>

The Philadelphia Federal Reserve Bank's Index of General Business Conditions in the manufacturing sector improved sharply this month. The rise to 10.9 more than reversed the deterioration down to 0.0 during August. During the last ten [...]

Philadelphia Fed Index Improved

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921a.jpg" width="353">
The Philadelphia Federal Reserve Bank&#39;s Index of General Business Conditions in the manufacturing sector improved sharply this month. The rise to 10.9 more than reversed the deterioration down to 0.0 during August.
During the last ten years there has been a 65% correlation between the level of the Philadelphia Fed Business Conditions Index and three-month growth in factory sector industrial production. There has been a 43% correlation with q/q growth in real GDP.
The sub indexes for new orders and inventories accounted for most of the rise in the overall index. Shipments improved only marginally while the indexes for unfilled orders and employment both fell. During the last ten years there has been a 75% correlation between the employment index and the three-month growth in factory payrolls.
The business conditions index reflects a separate survey question, not the sub indexes.<img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921b.jpg" width="353">
The prices paid index reversed some of its deterioration in August but remained near its low since February. During the last ten years there has been a 76% correlation between the prices paid index and the three-month growth in the intermediate goods PPI. There has been an 85% correlation with the change in core intermediate goods prices.
The separate index of expected business conditions in six months fell slightly but remained near its best level since late in 2004. Expectations for new orders were quite firm and though expectations for the number of employees fell from its recent high, it remained firm.
Subprime Side Effects in the Federal Funds Market from the Federal Reserve Bank of St. Louis can be found <a href="http://research.stlouisfed.org/publications/mt/20071001/cover.pdf"> here.</a>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol"><a href="http://www.haverselect.com/dlx/SURVEYS/@S5/@S504/@S504.HTM">Philadelphia Fed Business Outlook</a></th>
<th scope="col">September</th>
<th scope="col">August &nbsp;</th>
<th scope="col">Sept. &#145;06</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">General Activity Index</td>
<td>10.9&nbsp;</td>
<td>0.0</td>
<td>2.3&nbsp;</td>
<td>8.1</td>
<td>11.5</td>
<td>28.1</td>
</tr>
<tr>
<td class="firstcol">Prices Paid Index</td>
<td>23.1&nbsp;</td>
<td>15.4&nbsp;</td>
<td>46.6&nbsp;</td>
<td>36.6</td>
<td>40.1</td>
<td>51.2</td>
</tr>
</tbody>
</table>
NTC Measures Plunge in September-Back to Central Banking School? 
by <a href="/comment/Brusca.html">Robert Brusca</a> September 21, 2007


<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921c.jpg" width="353">
Slip-slidin&#146; away&#133;
The chart on the left tells the story. The table below gives the perspective on the trend with more precision. Anyway you slice it, the release of the Reuters NTC PMI FLASH! readings for the Euro area tell a grim story&#133;the weakest readings in 21 months. That is since its inception for the services measure taking the MFG PMI back to January 2000, so as to include a recession, raises the range ranking of the MFG PMI to the 70th percentile or the top 30%. That is better but it falls short of being called &#145;strong&#146; or robust. If we were grading papers a 70 would be a C-minus.
And this is a September reading that predates the recent push up in the Euro. We have heard Germany&#146;s wise man Bofinger talk of the potential for FX intervention. Intervention was a topic of the speech to today by the ECBs Bini Smaghi. Airbus has warned of adverse strong-euro effects. The currency game is in full swing.
Who&#146;s at risk: Who Da man?While everyone gnashes their teeth for the poor, poor dollar let&#146;s remember that it&#146;s the strong currency country that really get hurt.
Look at Japan&#146;s decade-long torpor after the too-strong yen. Maybe Europe should spend more time worrying about its own polices instead of the US. Since the US has been denied any control of some its most important FX rates as Japan has wallowed in weak growth and borrowing that cheapie has mushroomed into a cottage industry of massive proportions and since China has asserted its right to commandeer its bilateral peg with the dollar, stress has been left fall elsewhere. Euro anyone?
From jubilation to frustration. We have watched with interest as Europe has chortled over the rise of the euro and as that has segued into a view of the literal invincibility of its growth even as the termites have set about their work on those wooden arguments.
Some have talked of switching reserves into euro. Well be careful what you wish for. Now Europe looks in horror at what is happening. This is a continent based on exporting. Exports are typically high; 40% of GDP in Germany and higher in other countries there. A too-high exchange rate is not the sort of collateral problem for Europe that it has been in the US with export more like 10% to 15% of GDP. And, as we have written before, the trouble with being a reserve center currency is that you need a lot of flexibility in your economy to deal with the swing in capital flows that might arise. So despite the fact that those who have shifted into euro may now be happy the real question is this: for how long?
A one-two punch? For Europe the FX rise is taking its toll in concert with the impact from the financial situation everyone said would not spread. The Bank of England was for a while stubborn about its own building crisis (a gathering storm?). But it has had to cave and offer so much assistance that Mr. King is now being crowned (in the pejorative sense) by the Select Committee looking into those matters.
One in repair, one in despair. The ECB is now taking blasts from its favorite critic, Mr Sarcastic, err Sarkozy. While the dollar is floundering, it is in shallow water. As I remind people of this key question: from here how far can the dollar fall and against what? Meanwhile, back at the Euro-ranch, real trouble is brewing and it does not have a good solution. Talk of FX intervention is a pea shooter against a charging elephant. No trained Mahoot would stand in the way of that charging beast, let alone with a pea shooter for a weapon. It is fair to say that the US is in state of repair and Europe is in a state of despair. So much for the fate of the poor dollar&#133; Dollar rules! Euro drools! Why? Because the dollar and US economy can survive this sort of things since IT IS A REAL RESERVE UNIT with all the trappings. The euro, sadly, is not.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col></colgroup>
<thead>
<tr>
<th colspan=3 scope="col">FLASH Readings</th>
</tr>
<tr>
<th colspan="3" scope="col">NTC PMIs for the Euro area 13</th>
</tr>
</thead>
<tbody>

<tr class="even">
<td class="firstcol">&nbsp;</td>
<td>MFG</td>
<td>Services</td>
</tr>
<tr>
<td class="firstcol">Sep-07</td>
<td>53.23</td>
<td>54.04</td>
</tr>
<tr class="odd">
<td class="firstcol">Aug-07</td>
<td>54.16</td>
<td>57.91</td>
</tr>
<tr class="grey2">
<td colspan="3" class="firstcol">Averages</td>
</tr>
<tr>
<td class="firstcol">3-Mo</td>
<td>54.08</td>
<td>56.68</td>
</tr>
<tr class="odd">
<td class="firstcol">6-Mo</td>
<td>54.67</td>
<td>57.01</td>
</tr>
<tr>
<td class="firstcol">12-Mo</td>
<td>55.41</td>
<td>57.14</td>
</tr>
<tr class="grey2">
<td colspan="3" class="firstcol">21-Mo Range</td>
</tr>
<tr>
<td class="firstcol">High</td>
<td>57.61</td>
<td>61.21</td>
</tr>
<tr class="odd">
<td class="firstcol">Low</td>
<td>53.23</td>
<td>54.04</td>
</tr>
<tr>
<td class="firstcol">% Range</td>
<td>0</td>
<td>0</td>
</tr>
</tbody>
</table>
Japan is Losing Momentum Across Sectors 
by <a href="/comment/Brusca.html">Robert Brusca</a> September 21, 2007


<div align="left"><img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921g.jpg" width="353">
Construction sector is on its LIFETIME LOW &#150; since 1993. 
The chart on the left shows the 12-month momentum in Japan&#146;s various key sectors. Among them, only construction is contracting and it has been doing that since mid -2006. Construction is at the its lifetime low point. Other sectors are relatively high in their respective ranges &#150; in their 90th percentiles. But momentum is fading across these sectors. MFG is only gradually losing momentum while the tertiary sector (services) has less momentum to start and is also losing it faster. The all industry measure tracks the tertiary sector closely. </div>

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th colspan="10" scope="col">Japan Main Industry Surveys</th>
</tr>
</thead>
<tbody>
<tr class="even">
<td class="firstcol"></td>
<td colspan="3">Recent Months</td>
<td colspan="3">Moving Averages</td>
<td colspan="3">Extremes: Range</td>
</tr>
<tr class="grey3">
<td class="firstcol">&nbsp;</td>
<td>Jul 2007</td>
<td>Jun 2007</td>
<td>May 2007</td>
<td>3Mo</td>
<td>6Mo</td>
<td>12Mo</td>
<td>Max</td>
<td>Min</td>
<td>%-Tile</td>
</tr>
<tr>
<td class="firstcol">All Industry</td>
<td>107.1</td>
<td>107.5</td>
<td>107.3</td>
<td>107.3</td>
<td>107.2</td>
<td>106.9</td>
<td>107.6</td>
<td>93.1</td>
<td>1.0</td>
</tr>
<tr class="odd">
<td class="firstcol">Construction</td>
<td>78.7</td>
<td>80</td>
<td>81.6</td>
<td>80.1</td>
<td>80.3</td>
<td>80.4</td>
<td>124.6</td>
<td>78.7</td>
<td>0</td>
</tr>
<tr>
<td class="firstcol">Mining and MFG</td>
<td>108.1</td>
<td>108.5</td>
<td>107.1</td>
<td>107.9</td>
<td>107.8</td>
<td>107.9</td>
<td>109.6</td>
<td>87.7</td>
<td>0.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Tertiary</td>
<td>109.7</td>
<td>110.3</td>
<td>110.2</td>
<td>110.1</td>
<td>110.0</td>
<td>109.5</td>
<td>110.7</td>
<td>91</td>
<td>0.9</td>
</tr>
<tr class="grey1">
<td colspan="10" class="firstcol">Ranges, Max, Min since 1993</td>
</tr>
</tbody>
</table>
Canada's Retail Trade Falls 0.8% in July, But Could Be Simple Offset to Earlier Strength 
by <a href="/comment/Stone.html">Carol Stone</a> September 21, 2007


<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921d.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921e.jpg">
Retail trade in Canada fell 0.8% in July following on a 1.1% drop in June. May had been stronger, with a 2.8% increase. The July result year-on-year was up 3.8%. This was the weakest y/y increase since October 2005, although the monthly swings in these growth rates make it a bit misleading to characterize the one month; the y/y change in a 3-month moving average, by contrast, was 6.6%, roughly in line with recent experience.
Several store groups shared the pattern of a strong May followed by decreases in June and July. The automotive sector, which accounts for about 34% of retail sales in Canada, gained 4.3% in May, but then fell 2.9% in June and 1.3% in July. But others duplicated this: home centers and hardware stores, clothing, and general merchandise, as examples.
The strength in May&#39;s sales was believed by Statistics Canada and private analysts to be largely attributable to a government-worker pay settlement received by women in Quebec, one of a series of &quot;pay equity&quot; settlements achieved by unions and/or reflecting national legislation concerning salaries of women and men. <img align="right" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070921f.jpg" width="353">Sales in Quebec then were up 5.0% in May and they fell 4.1% in June and 0.7% in July. Sales among all the other Provinces, though, still rose 2.2% in May, so not all of the push was due to the payout to Quebec&#39;s workers.
Among other of the big Provinces, Ontario saw 2.1% growth in May and then declines of 0.5% in June and 1.9% in July. Alberta sales rose 2.9% in May and 0.6% in June; they edged down 0.2% in July. 
On a volume basis, sales showed the same monthly pattern. In chained 2000 C$, they rose 2.5% in May and fell back 0.7% in June and 0.8% in July. Prices were thus not the major reason for the swing in nominal sales. In May, the retail trade price index rose just 0.3%; it declined 0.4% in June and was flat in July.
As we noted at the outset, while these sales look to be slowing if July alone is compared to year-ago figures, it really does seem too early to conclude that the trend is shifting. However, the trend in the Canadian economy looks to be quite sensitive to the path of this key measure of consumer demand over the next month or two.
The national data for Canada are contained in Haver&#39;s CANSIM database, with that for the Provinces in CANSIMR.

<table border="0" cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">CANADA (% Chg)</th>
<th scope="col">Jul 2007*</th>
<th scope="col">Jun 2007*</th>
<th scope="col">May 2007*</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Retail Trade: All Groups</td>
<td>-0.8</td>
<td>-1.1</td>
<td>2.8</td>
<td>3.8</td>
<td>6.4</td>
<td>5.6</td>
<td>4.7</td>
</tr>
<tr>
<td class="firstcol">All Motor Vehicles &amp; Parts Dealers</td>
<td>-2.3</td>
<td>-3.6</td>
<td>5.0</td>
<td>3.7</td>
<td>6.0</td>
<td>5.0</td>
<td>0.1</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less MV &amp; P</td>
<td>0.3</td>
<td>1.9</td>
<td>0.1</td>
<td>4.7</td>
<td>6.4</td>
<td>6.5</td>
<td>6.2</td>
</tr>
<tr>
<td class="firstcol">Gasoline Stations</td>
<td>-3.5</td>
<td>4.7</td>
<td>5.3</td>
<td>0.2</td>
<td>9.1</td>
<td>15.4</td>
<td>11.4</td>
</tr>
<tr class="odd">
<td class="firstcol">Total less MV &amp; P and Gasoline</td>
<td>0.9</td>
<td>1.5</td>
<td>-0.6</td>
<td>5.4</td>
<td>5.9</td>
<td>5.2</td>
<td>5.5</td>
</tr>
</tbody>
</table>
</body>
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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920g.jpg" width="353">
Today, the BEA reported personal income by state for Q2. This sizable body of data, carried in Haver&#39;s PIQR database, shows the composition of aggregate personal income for each state by type of income and earnings by industry. In Q2 total personal income for the country grew 1.2%, following 2.5% in Q1. Q1 had included the payment of large bonuses covering year-end 2006, and these enlarged the income growth reported for Q1 and the apparent slowdown in Q2. The year-on-year growth in Q2 personal income, though, was 6.4%, well in line with the performance of the last three years. Similarly, earnings rose 1.0% in Q2 compared with 2.2% in Q1; the year-on-year growth was 5.9%, also running about average with recent years&#39; experience. These data levels are given in seasonally adjusted annual rates, but the % changes are cited as quarterly rates by BEA.
By state, personal income grew as much as 2.0% in Q2 in Utah and it declined outright in New York -- by 0.1%. New York workers had received the biggest part of the Q1 bonus money and income there then expanded by 4.8%. So the decline in Q2 should be seen as weak only relative to the bulge in Q1 growth. In Utah, the big Q2 gains income came in earnings, with outsized gains in professional and technical industries, durable goods manufacturing and construction.
This report highlights a special feature of state income data. Income is measure according to residence; I live and work in New York, for instance, so all of my income occurs in New York. But earnings are compiled from establishment data, so they represent earnings were people work, which is not necessarily the state they they live in. Adjustment is needed to reconcile these differences Our data table below shows two states with a noticeable impact from commuters. Many New Jerseyans work in New York. So earnings (defined here as wages and salaries net of contributions for social insurance) defined by residence are larger in New Jersey than those reported for workers. So we see that the &quot;worker&quot; data are increased by a positive factor, which was $35.9 billion in Q2, or 11.7% of earnings of residents.
In contrast, many people who work in Missouri live in Kansas or Illinois. So Missouri has a negative &quot;residence adjustment&quot;. In Q2 it was $4.3 billion, or 2.8% of earnings reported for workers in the state. That is, 2.8% of earnings earned in Missouri was transferred to other states where the workers actually reside.
Most states have a negligible residence adjustment since nearly everyone lives and works in the same state. But all states have even a small amount. And the country as a whole has a tiny but negative residence adjustment, since some people who work in the US live in another country.[Note that these personal income data are compiled separately from the personal income reported in the National Income Accounts. The differences would be the subject of another commentary, but for now, it is enough to say that the sum of the states need not equal the total of personal income in the more familiar national data. It are quite close, however.] 
<img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920h.jpg"><img class="small" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920i.jpg">
<table cellspacing="0" width="100%">
<colgroup><col><col><col><col><col><col><col></colgroup>
<thead>
<tr>
<th scope="col" class="firstcol">Personal Income by State</th>
<th scope="col">Q2 2007</th>
<th scope="col">Q1 2007</th>
<th scope="col">Q4 2006</th>
<th scope="col">Year Ago</th>
<th scope="col">2006</th>
<th scope="col">2005</th>
<th scope="col">2004</th>
</tr>
</thead>
<tbody>
<tr>
<td class="firstcol">Personal Income, Total US</td>
<td>11,595</td>
<td>11,459</td>
<td>11,181</td>
<td>10,902</td>
<td>10,967</td>
<td>10,284</td>
<td>9,711</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>1.2</td>
<td>2.5</td>
<td>1.5</td>
<td>6.4</td>
<td>6.6</td>
<td>5.9</td>
<td>6.1</td>
</tr>
<tr>
<td class="firstcol">Net Earnings by Residence</td>
<td>7,893</td>
<td>7,812</td>
<td>7,646</td>
<td>7,453</td>
<td>7,504</td>
<td>7,104</td>
<td>6,739</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>1.0</td>
<td>2.2</td>
<td>1.9</td>
<td>5.9</td>
<td>5.6</td>
<td>5.4</td>
<td>6.5</td>
</tr>
<tr class="grey2">
<td colspan="8" class="firstcol">Earnings by State</td>
</tr>
<tr>
<td class="firstcol">New Jersey</td>
<td>307</td>
<td>305</td>
<td>296</td>
<td>291</td>
<td>291</td>
<td>276</td>
<td>263</td>
</tr>
<tr class="odd">
<td class="firstcol">&nbsp; % Change</td>
<td>0.5</td>
<td>3.0</td>
<td>2.3</td>
<td>5.2</td>
<td>5.7</td>
<td>4.8</td>
<td>6.4</td>
</tr>
<tr>
<td class="firstcol">Residence Adjustment</td>
<td>35.9</td>
<td>36.7</td>
<td>33.7</td>
<td>31.7</td>
<td>32.5</td>
<td>29.1</td>
<td>26.9</td>
</tr>
<tr class="odd">
<td class="firstcol">Missouri</td>
<td>132</td>
<td>131</td>
<td>129</td>
<td>127</td>
<td>127</td>
<td>121</td>
<td>117</td>
</tr>
<tr>
<td class="firstcol">&nbsp; % Change</td>
<td>1.3</td>
<td>1.5</td>
<td>1.7</td>
<td>4.5</td>
<td>4.4</td>
<td>4.1</td>
<td>5.5</td>
</tr>
<tr class="odd">
<td class="firstcol">Residence Adjustment</td>
<td>-4.3</td>
<td>-4.3</td>
<td>-4.2</td>
<td>-4.3</td>
<td>-4.2</td>
<td>-4.2</td>
<td>-3.8</td>
</tr>
</tbody>
</table>
</body>
</html>

Today, the BEA reported personal income by state for Q2. This sizable body of data, carried in Haver's PIQR database, shows the composition of aggregate personal income for each state by type of income and earnings by industry. In Q2 [...]

Personal Income Growth Slows in Most States in Q2 after Bonuses Paid in Q1; Commuting Patterns Require Adjustment [...]

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920f.jpg" width="353">
The CBI survey presents its data in net balance form like the Philadelphia Fed survey and NFIB survey. Values above unity denote increases, below unity they show declines. The ratings are about the breadth of the trend rather that the strength, although strength is usually inferred from breadth. The reading this month shows that orders are still rising but that the breadth of the reading is diminishing. More broadly the chart on the left shows that the trend toward narrowing gains is in place over long and short horizons. Export orders are on the decline; we have previously seen weakening in German orders for July and in other EMU countries. Output for the moment is holding up and is not reflecting any of the weakness in order trends. Prices are still showing upward pressure with a net positive reading of 16 in the current month but that is barely changed since the 12-month average is +17. Still UK inflation data have been good and the prospects for inflation are considered excellent.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
UK Industrial volume data CBI Survey
</tr>
</thead>
<tbody>
<tr class="odd">
<td class="firstcol">Reported:</td>
<td>Sep-07</td>
<td>Aug-07</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>12Mo Avg</td>
<td>Pcntle</td>
<td>Max</td>
<td>Min</td>
<td>Range</td>
</tr>
<tr>
<td class="firstcol">Total Orders</td>
<td>6</td>
<td>9</td>
<td>-6</td>
<td>8</td>
<td>0</td>
<td>94%</td>
<td>9</td>
<td>-40</td>
<td>49</td>
</tr>
<tr>
<td class="firstcol">Export Orders</td>
<td>-2</td>
<td>-3</td>
<td>-8</td>
<td>0</td>
<td>-4</td>
<td>91%</td>
<td>3</td>
<td>-50</td>
<td>53</td>
</tr>
<tr>
<td class="firstcol">Stocks: Final Goods</td>
<td>7</td>
<td>9</td>
<td>6</td>
<td>-2</td>
<td>9</td>
<td>32%</td>
<td>26</td>
<td>-2</td>
<td>28</td>
</tr>
<tr>
<td class="firstcol">Output Volume: Next 3M</td>
<td>17</td>
<td>13</td>
<td>10</td>
<td>25</td>
<td>16</td>
<td>80%</td>
<td>28</td>
<td>-28</td>
<td>56</td>
</tr>
<tr>
<td class="firstcol">Avg Prices 4 Next 3M</td>
<td>16</td>
<td>16</td>
<td>11</td>
<td>16</td>
<td>17</td>
<td>84%</td>
<td>25</td>
<td>-30</td>
<td>55</td>
</tr>
</tbody>
</table>
</body>
</html>

The CBI survey presents its data in net balance form like the Philadelphia Fed survey and NFIB survey. Values above unity denote increases, below unity they show declines. The ratings are about the breadth of the trend rather that the [...]

In the UK, CBI Orders are Fading Over All Major Horizons

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<img align="left" border="0" height="265" src="https://haver-commentaries.s3.eu-west-1.amazonaws.com/comments/070920e.jpg" width="353">
Manufacturing orders are sharply lower in France in July following a pattern we have seen among previous European reports of industrial orders in July. Like those reported earlier, French new orders, which dropped sharply in July, merely offset a similarly strong rise in June. France&#146;s Yr/Yr trend remains firmly higher with Yr/Yr rates of growth of 15.5% overall and 14.8% for foreign orders. Despite the drop in July, the three-month growth is strong and accelerating compared to the six-month rate. However, in the new quarter (Q3) orders are growing at a pace of only 1.3% annualized. This could be the start of a slowing in orders as the euro has climbed and has just recently broken to a new all-time high above $1.40. This is what will bear watching in the months ahead. As &#145;current&#146; data are for July, and the Euro&#146;s new peak is in mid-September.

<table border="0" cellspacing="0" width="100%">
<colgroup></colgroup>
<thead>
<tr>
<th colspan="7" scope="class">French Orders</th>
</tr>
</thead>
<tbody>
<tr class="grey2">
<td class="firstcol">Saar exept m/m</td>
<td>Jul-07</td>
<td>Jun-07</td>
<td>May-07</td>
<td>3-mo</td>
<td>6-mo</td>
<td>12-mo</td>
</tr>
<tr>
<td class="firstcol">Total</td>
<td>-2.9%</td>
<td>3.4%</td>
<td>3.1%</td>
<td>14.6%</td>
<td>4.9%</td>
<td>15.5%</td>
</tr>
<tr>
<td class="firstcol">Foreign</td>
<td>-2.0%</td>
<td>2.2%</td>
<td>3.5%</td>
<td>16.0%</td>
<td>4.8%</td>
<td>14.8%</td>
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</tbody>
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Manufacturing orders are sharply lower in France in July following a pattern we have seen among previous European reports of industrial orders in July. Like those reported earlier, French new orders, which dropped sharply in July, [...]

French Orders Continue to Rise Year-Over-Year

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Wage growth slowing in the US and Euro area; elevated and sticky in the UK

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US policy gyrations boosting policy uncertainty worldwide

Expected tariff hikes have boosted inflation expectations

US and Japan ended 2024 on solid ground in contrast to Europe

US economy expected to outperform other major economies in 2025

Only modest evidence of AI-related surge in US productivity growth

Previous Trump tariffs fading. A boost from new tariffs ahead?

Heavy US manufacturing states underperforming while Sun Belt states outperforming

Rising long-term yields a global phenomenon

US financial market concerns shifting from growth to inflation

Economic activity is picking up in the US but remains lackluster abroad

Policy uncertainty has surged since the US national elections.

Recent turnaround in US economic surprises leading to increases in rate-cut expectations

The outlook has brightened in the US, while it has dimmed for other major economies

Headline US PCE inflation elevated by sticky services prices

US and global equity prices have recently diverged

US leading global upturn in economic surprises

Blue Chip forecasters look for further significant monetary easing apart from Japan

Recent rise in global supply chain pressures could augur a pickup in global inflation pressures

Underperforming German economy generating increased policy uncertainty relative to Europe and the US

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Andrew Cates

**China-US shipping activity** 
The economic fallout from escalating US-China trade tensions is becoming increasingly visible in the data. A clear example is the chart below, which highlights a sharp drop in vessel arrivals at the ports of Los Angeles and Long Beach, along with a notable decline in ships waiting offshore. These trends point to a tangible weakening in bilateral trade flows, as the effects of tit-for-tat tariffs imposed by both countries begin to bite. Given the outsized role the US and China play in global commerce, this slowdown is likely to reverberate through global supply chains, weighing on trade volumes, dampening demand, and curbing economic growth worldwide.

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**GDP growth in Q1**
Data this week showed that the US economy contracted, albeit modestly, in Q1 even as the euro area recorded a modest expansion—an unusual divergence. The contraction in US GDP can be largely attributed to a sharp increase in imports, as firms rushed to front-load purchases ahead of anticipated tariff hikes. In addition, domestic demand was subdued, with weaker contributions from both consumer spending and government consumption. This decoupling between the US and euro area economies is particularly striking given the current global focus on the US dollar. While the euro area has shown unexpected signs of resilience, the US downturn raises important questions about its underlying momentum, especially as trade dynamics and policy uncertainty continue to cloud the outlook.

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**The US dollar versus yield differentials**
Chart 3 below illustrates a sharp breakdown in the correlation between the US-Germany 10-year yield differential and the EUR/USD exchange rate. Historically, the dollar has moved closely with interest rate spreads, as yield-seeking capital flowed into US assets. But since early 2025—and more acutely following the April tariff actions—the dollar has weakened markedly even as the yield spread has narrowed only modestly. This decoupling underscores a critical shift: capital markets are reacting not just to monetary policy, but to rising trade and geopolitical uncertainty. In other words, the exchange rate is now being driven as much by risk sentiment as by interest rate arbitrage.

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**The US economy’s structural outperformance and the dollar**
A second dynamic, captured in the next chart, reveals a tight correlation between the US real effective exchange rate and the potential GDP growth differential between the US and euro area over the past 50-60 years. This raises the question: has dollar strength (until recently) merely been a reflection of US growth leadership—or are capital inflows themselves helping to sustain this growth outperformance? In effect, the tail may be wagging the dog. Global investors have long allocated capital to the US, attracted by its macroeconomic resilience, technological leadership, and deep, liquid financial markets. The danger now is that the US trade war may disrupt this equilibrium. A sharp or sustained reduction in capital inflows could undermine growth, weaken the dollar, and trigger broader financial instability. Moreover, reversing this dynamic is not straightforward—barring a credible structural resurgence in European (or Asian) growth, the global investment landscape remains tilted toward the US.

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**US competitiveness versus Europe, China and Japan** 
The next chart below examines relative unit labour costs across major economies since 2011. The US and China have seen a broadly similar trajectory, with steady increases in relative cost structures, while the euro area has remained flat and Japan has seen dramatic improvement. This suggests that, from a cost competitiveness standpoint, the US is not uniquely disadvantaged vis-à-vis China. However, as we discuss further below, this parallel erosion of cost competitiveness is occurring at much higher nominal wage levels in the US, which blunts its ability to regain export share through tariff-related shifts alone. The trade war strategy—absent a corresponding improvement in productivity or structural reforms—risks imposing costs without delivering material competitiveness gains.

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**Average wages in selected developed and developing economies**
This point is reinforced by the final chart, which shows estimates for average monthly wages across countries in 2024. US labour remains much more expensive than in peer or emerging economies. So even if China’s costs rise in tandem with the US, the global supply chain has ample alternatives. 'China plus one' strategies are accelerating, and the US remains structurally misaligned with low-cost production hubs. Tariffs aimed at reshoring supply chains are unlikely to deliver sustained gains unless accompanied by deep supply-side reforms, and risk further disincentivizing foreign direct investment if global firms perceive US trade policy as erratic or punitive.

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Financial markets found a measure of calm this week, buoyed by some subtle shifts in tone from US policymakers. A softening in the administration’s rhetoric around trade tariffs coupled with a less confrontational stance toward Federal Reserve Chair Jerome Powell, helped ease tensions that had roiled markets earlier in the month. Equities rebounded modestly, and volatility indicators edged lower, reflecting cautious optimism that the worst of the policy shocks may be behind us. But beneath the surface, significant downside risks persist. New shipping data point to a pronounced slowdown in US-China trade flows (chart 1), suggesting the damage from recent tariff escalations is already rippling through global supply chains. Meanwhile, incoming data for the US revealed an unexpected contraction in the economy in Q1 and further signs of weakness in the labour market (chart 2). The US dollar, in the meantime, while long supported by superior growth and yield differentials, has begun to decouple from traditional drivers (charts 3 and 4) suggesting growing pressure on capital flows. At the same time, structural imbalances are drawing renewed scrutiny: unit labour cost comparisons show the US steadily losing competitiveness (chart 5), while nominal wage disparities remain stark versus China and other Asian economies, further complicating any effort to restore trade balance without broader reforms (chart 6). In short, while markets may be drawing temporary comfort from a pause in tariff brinkmanship, the deeper economic and financial vulnerabilities exposed this month remain unresolved—and increasingly central to the global macro narrative.

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Charts of the Week: Tariff Truce, Tenuous Trust

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The ISM Purchasing Managers Index of activity in the manufacturing sector slipped to 48.7 in April from 49.0 during March and 50.3 in February. It remained up from a low of 46.9 in October of last year. A level of 50 is the break-even point between a rising and falling level of activity. The Action Economics Forecast Survey expected a reading of 47.8 for April. The series reached a monthly high of 63.8 in March 2021.

Two of the five component indexes weakened last month. The April production index fell to 44.0 after declining to 48.3 in March. It was the lowest level since May 2020. A lessened 19.8% (NSA) of respondents reported higher production while an increased 24.2% reported lower output. The inventories index declined to 50.8 last month from 53.4 in March. The index remained up from a low of 43.2 in October of last year.

Moving higher, the new orders index rose to 47.2 last month from 45.2 in March. The index remained below a January high of 55.1. Twenty-eight percent (NSA) of respondents reported higher new orders while 26.7% reported a decline. The employment index rose to 46.5 from 44.7 in March. It was below a high of 50.3 in January. A greater 13.1% (NSA) of respondents reported more hiring while a fewer 16.2% indicated less. The supplier delivery index rose to 55.2 from 53.5 in March. A higher 16.6% (NSA) of respondents reported slower delivery speeds while a fairly steady 6.2% reported a quickening.

The prices index, which is not part of the composite series, edged up to 69.8 (NSA) in April after increasing to 69.4 in March. It was the highest level since June 2022, up from a December 2022 low of 39.4. An increased 49.2% of respondents reported higher prices last month, up from 12.2% in November, while a higher 9.7% reported lower prices.

In other series, the export orders index plummeted to 43.1 in April from 49.6 during March. It was down from the high of 52.4 in January. The imports index fell sharply to 47.1 from 50.1 in March. It was the lowest reading since December 2023. The order backlog index dropped to 43.7 (NSA) last month from 44.5 in March. It was the lowest level in five months.

The ISM figures are based on responses from over 400 purchasing executives from 18 industries, which are weighted according to each industry’s contribution to GDP. These indexes are diffusion indexes where a reading above 50 indicates expansion and a reading below 50 points to contraction. The figures from the Institute for Supply Management can be found in Haver’s **USECON** database; further detail is found in the **SURVEYS** database. The expectations number is available in Haver’s **AS1REPNA** database.

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- Declines in last three months follow earlier improvement.
- Production & inventories account for m/m shortfall.
- Prices index edges up to another three-year high.

U.S. ISM Manufacturing Index Indicates Contraction in April

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Real GDP eased 0.3% SAAR (+2.1% y/y) during the first quarter of 2025 after increasing 2.4% in Q4’24 and 3.1% in Q3’24. A 0.4% increase had been expected in the Action Economics Forecast Survey. It was the first decline since Q1 2022.

Foreign trade subtracted 4.83 percentage points from growth last quarter as imports surged 41.3% (13.4% y/y) ahead of tariffs, which began to come into effect in the first quarter. The rise followed a 1.9% decline in Q4’24. Exports rose 1.8% (3.0% y/y) after easing 0.2% in Q4. Inventories added 2.25 percentage points to growth after subtracting 0.84 percentage point from Q4 growth.

Real final sales to domestic purchasers grew 2.3% (2.9% y/y) in Q1 after rising 3.0% in Q4. Personal consumption expenditures rose 1.8% (3.1% y/y) following a 4.0% gain. Durable goods spending fell 3.4% (+5.3% y/y) after surging 12.4% in Q4. Motor vehicle purchases declined 11.1% (+5.5% y/y) after strengthening 19.7% in Q4. Spending on home furnishings & appliances gained 1.5% (6.1% y/y) following a 5.4% rise. Recreational goods & vehicle outlays rose 2.5% (7.0% y/y) last quarter after a 13.9% Q4 increase.

Nondurable goods outlays rose 2.7% (3.0% y/y) following 3.1% growth in Q4. Apparel spending increased 6.7% (2.5% y/y) following a 5.0% rise. Food & beverage buying gained 2.5% (2.3% y/y) after a 1.8% increase. Gasoline & fuel oil purchases increased 4.6% (3.4% y/y) after falling 2.0% in Q4.

Spending on services increased 2.4% last quarter (2.7% y/y) after a 3.0% gain. Outlays on housing & utilities increased 3.4% (1.8% y/y) after rising 1.1% in Q4. Health care expenditures rose 4.0% (4.8% y/y) following a 4.7% strengthening. Transportation outlays increased 5.3% (4.6% y/y) after a 3.7% rise while recreation spending rose 4.7% (2.8% y/y) following a 4.5% rise. Restaurant & hotel expenditures declined 2.1% (+0.5% y/y) following a 2.8% rise. Financial services expenditures rose 1.9% (2.0% y/y) after a 3.1% Q4 increase.

Business fixed investment increased 9.8% (3.6% y/y) following a 3.0% decline in Q4. Expenditures on structures rose 0.4% (-0.4% y/y) after a 2.9% increase. Expenditures on producers’ durable equipment jumped 22.5% (8.0% y/y) after falling 8.7%.  Outlays on information processing equipment soared 69.3% (18.9% y/y) following a 7.3% decline. Industrial equipment investment fell 1.4% (-0.3% y/y) after easing 0.9%. Intellectual property product spending rose 4.1% (1.8% y/y) following a 0.5% decline. 

Residential structures investment increased 1.3% (-0.1% y/y) in Q1 after a 5.5% Q4 rise.

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Government spending fell 1.5% (+2.4% y/y) after a 3.1% Q4 rise. Federal government expenditures declined 5.1% (+2.9% y/y) after rising 4.0% in Q4. National defense expenditures declined 8.0% (+4.0% y/y) after increasing 4.8% in Q4. State & local government spending rose 0.8% (2.1% y/y) following a 2.5% rise.

The GDP price index rose 3.7% (2.6% y/y) after increasing 2.3% in Q4. It was the largest increase since Q4’22. A 2.4% increase had been expected. The PCE chain price index increased 3.6% (2.5% y/y) following a 2.4% rise. The PCE price index excluding food and energy rose 3.5% (2.8% y/y) after increasing 2.6% in Q4. The business fixed investment price index rose 0.4% (1.8% y/y) after 1.5% rise. The residential price index strengthened 3.9% (3.2% y/y) after a 1.9% rise while the government price index increased 4.7% (2.8% y/y) following a 2.1% rise.

The GDP data can be found in Haver’s **USECON** and **USNA** databases. **USNA** contains virtually all of the Bureau of Economic Analysis detail in the national accounts. The Action Economics consensus estimates can be found in **AS1REPNA**.

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- Decline in GDP is first in three years.
- Foreign trade subtracts substantially ahead of tariffs.
- Domestic final demand growth weakens.
- Price index strengthens with higher core PCE prices.

U.S. GDP Unexpectedly Declines in Q1’25; Prices Strengthen

Michael J. Moran

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High-side readings on the price indexes for personal consumption expenditures in January and February caused some concern about emerging price pressure, especially with some policies of the Trump administration possibly adding to the upward force. However, March brought notable relief, with the headline price index falling slightly (-0.04%). A marked decline in energy prices was helpful (-2.7%), but core prices also were subdued, increasing less than 0.1%.  Year-over-year changes were still above the Fed’s target of 2%, but only barely so for the headline measure (2.3%). The core index backed away from the reading of 3.0% in February, but the latest reading of 2.7% was in line with observations in the past year, and still uncomfortably above target.

Consumers roused from a winter slumber in March, with nominal outlays increasing 0.7%. With inflation restrained, real outlays also posted a gain of 0.7%. Spending on durable gods stood out, with real outlays advancing 3.2%. Real outlays for both nondurable goods and services rose 0.4%, a solid pace. Signs of life were certainly welcome after an average decline of 0.1% in January and February. The March rebound left growth of 1.8% (annual rate) in the first quarter.

The brisk increase in spending in March was supported by a solid gain in personal income (0.5% in both nominal and real terms). Growth in wage income was firm at 0.5%, while proprietors’ income was robust with a gain of 1.8% (not annualized!). The farm sector led the advance in proprietors’ income, but the nonfarm sector also was strong (0.6%).

The personal income and consumption figures are available in Haver’s **USECON** database with detail in the **USNA** database. The Action Economics forecasts are in **AS1REPNA**.

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- Price pressure eases.
- Spending rebounds after two soft months.

Personal Income, Consumption, and Prices in March

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The Pending Home Sales Index, a forward-looking home sales measure based on contract signings, from the National Association of Realtors rose 6.1% to 76.5 (-0.6% y/y) during March after rising a little-revised 2.1% in February. These changes followed a 4.6% January decline.

The rise in March sales occurred as the rate on a 30-year mortgage eased to an average 6.65% from 6.84% in February. This rate was well above a low of 2.68% averaged in December 2020.

Pending home sales were up in most regions of the country. Sales in the Midwest rose 4.9% (1.4% y/y) last month after rising 1.8% in February. Sales in the South increased 9.8% (-0.4% y/y) following a 5.8% February rise. Sales in the West improved 4.8% (-2.0% y/y) after falling 3.0% in February. Sales in the Northeast were off 0.5% (-3.0% y/y) in March after falling 0.9% in February.

The pending home sales index measures sales at the time the contract for the purchase of an existing home is signed, similar to the Census Bureau's new home sales data. In contrast, the National Association of Realtors' existing home sales data are recorded when the sale is closed, which is usually a couple of months after the sales contract has been signed. In developing the pending home sales index, the NAR found that the level of monthly sales contract activity leads the level of closed existing home sales by about two months.

The series dates back to 2001 and are available in Haver's **PREALTOR** database. Weekly mortgage interest rates from the Mortgage Bankers Association can be found in the **WEEKLY** database.

- Sales rise to highest level in four months.
- Strength is evident throughout most of country.

Economy in Brief: September 2007

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